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Jul 12, 2012, 08.23 AM IST
Sunil Duggal, CEO of Dabur India believes a good monsoon will be the key to volume growth for the first half of FY13. So far, the monsoon has disappointed and if there is a shortfall, it may dent volumes significantly, said Duggal.
Despite slowdowns in various sectors within the economy, in an interview with CNBC-TV18, Duggal said that consumer staples have not yet seen a slowdown. The company's international business performance has been robust and Dabur is now looking to build a supply chain in Africa.
Dabur has also lined up several products in the pipeline which might push up their advertisement spends comparatively this year. He also thinks that commodity prices will continue to remain volatile.
Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.
Q: You have rural India as a big market, it will obviously be a supplier of raw material but, what's the downside if it is a not so good monsoon? The last bad monsoon we had was 76% of the long-term average. If things got to that point, what's the downside for Dabur?
A: 76% shortfall is pretty serious, I think there would certainly be some aback in terms of overall demand plus there could be some inflation in agri commodities consequent to that. I think that's pretty much of a worst case scenario.
However, if there is a small deficiency of maybe 85-95% or 90%, I don't think demand would be materially affected. There could be some inflationary pressures building up, but the demand side should remain robust. But a serious shortfall like the one you mentioned, can be a cause of serious concern.
Q: Coming to the extinct demand itself. We hear slowdown stories all over the place. They began with capital expansion and investment cycle going down. It's beginning to show in the consumer space as well. The car numbers we got for the month of June were pretty dismal and two wheelers, the much smaller category also followed suit. Is it now beginning to show at your end as well?
A: Not yet. I don't think it's filtered down into consumer staples, especially the non-discretionary items. I think demand will remain robust in the event of a normal or close to normal monsoon. We are not particularly worried on that account, of course the monsoon being the only issue which is at stake.
Q: We have seen some softening of raw material prices or at least they are off their highs. Are you expecting any gross margin improvement in this quarter? And there is also a sense among analysts that a lot of this incremental gross margin improvement could flow into advertising and promotions (A&P). Is that the thinking at the company as well?
A: For us, yes that's exactly what our thinking is. There has been improvement in the gross margins. Most of it has been put into A&P and some of it has flowed down. Going forward, the outlook on commodity prices will see a lot of volatility. I don't think it is going to be a one way street in terms of downward movement of commodity prices. There would be volatility.
Oil already is firming up a little bit now. How the whole traction would be in terms of prices is a little bit early to say. But it would be a little bit more benign than what we saw last year when we saw extremely high material inflation. Let's see how it works out but A&P spends are going to remain robust at least in our case.
Q: What about the international outlook? How is the integration with Namaste going on, what are your targets in terms of overall growth in FY13? Last year you drew about Rs 650 crore. Could we see a 20-30% jump there?
A: 20-30% is aggressive. I think it will be more in the region of 20% or thereabout. The integration phase is going on and I think there is a lot of work to be done in building a supply chain for Africa which is really the epicenter of our integration and efforts.
That's not something which will be completed in the next couple of quarters. It will take this year and perhaps a bit of next for it to be completed and then the fruits of integration will be visible which is primarily going to be driven by a local supply chain. The international business otherwise is doing well.
The Middle East and African businesses are doing exceedingly well on the back of rapidly softening raw material prices because those are largely dollar denominated regions. And the demand is also fairly robust there. No major issues on our core businesses overseas which are in the MENA (Middle East and North Africa) region.
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